Trade uncertainty is dragging down investment and growth in the Asia-Pacific reg

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      Singapore, July 10, 2019 - Despite a slight improvement in the financial environment, trade uncertainty will put pressure on growth and investment in the Asia-Pacific region.
Although Sino-US trade and technology disputes seem to be temporarily suspended, policy uncertainty remains high. Indeed, policy uncertainty had risen earlier this year, and it seemed possible to reach an agreement at that time. For some time, we have believed that investment, not exports, will be the most important victim of the trade war, and this view is now partly realized. Capital expenditure growth in the Asia-Pacific region has slowed down, and capital expenditure in trade-oriented economies, which are more trade-dependent in the region, has shown negative growth.
"We have always believed that the short-term impact of trade and technology tensions will be limited, but the long-term impact may be greater than expected. This means that we are less concerned about bilateral tariffs and more concerned about the damaging effects of investment and export restrictions." Shaun Roache, chief economist for Asia-Pacific at S&P Global Rating, said.
Overall, the challenge of reaching a comprehensive trade agreement that can eliminate uncertainties in bilateral economic relations is enormous. The thorny issues of market access, intellectual property protection, agreement supervision mechanism and the possibility of reorganization of China's state-owned enterprises still exist. One party may need to make substantial concessions to reach a lasting agreement, but it seems unlikely, at least in the next 12 months.
A more relaxed financial environment partially offsets the negative impact of trade policy uncertainty. Dove talk from the Federal Reserve and the European Central Bank has signalled to markets that monetary policy will be more relaxed. Bond yields in the Asia-Pacific region have fallen, and several central banks in the region have cut policy interest rates during the year. Given low inflationary pressures and looser global monetary policy expectations, central banks in the Asia-Pacific region have the possibility of further interest rate cuts, especially in emerging markets.


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